Budget Expectations from the Middle Class
As the Union Budget approaches, millions of middle-class taxpayers are eagerly awaiting possible tax relief measures. Finance Minister Nirmala Sitharaman will unveil the Union Budget on February 1, 2026, a presentation that is expected to address income tax slabs and rates that could affect take-home pay for many households.
For the past few years, the focus has been on the simplification of tax processes and a transition towards a new income tax regime introduced in 2020. This regime has progressively attracted taxpayers, especially those looking for reduced liabilities sans complicated deductions and exemptions.
The Shift to the New Income Tax Regime
The new income tax system was introduced with an aim to simplify compliance with the tax laws. In her 2020 Budget speech, Minister Sitharaman underscored that the older income tax framework was riddled with exemptions and deductions, complicating matters for taxpayers and tax authorities alike. She stated, “It is almost impossible for a taxpayer to comply with the Income-tax law without taking help from professionals.” Therefore, the new system was designed to offer substantial relief to individual taxpayers, allowing them to select a regime that best suits their financial circumstances.
Under the current structure, taxpayers must make an informed choice between the old and new tax regimes. Notably, the new system offers lower tax rates in exchange for waiving specific exemptions and deductions. For instance, for individuals earning an income above ₹15 lakh, the lowest slab remains at 30% under the new regime, as opposed to ₹10 lakh in the older system.
Recent Changes and Impacts
Revised Tax Slabs
Recent revisions in the new tax regime have significantly changed the landscape of income tax. In the Union Budget for the fiscal year 2023-24, exemptions were modified, including a hike in the tax exemption limit to ₹3 lakh and the introduction of a standard deduction benefit of ₹50,000. Moreover, the rebate limit under Section 87A was raised to ₹7 lakh. Consequently, anyone earning up to this limit will not pay any income tax under the new regime.
Last year’s Union Budget established that an income of ₹12 lakh or less would incur no tax liability under the new regime, prompting many middle-class taxpayers to make the switch. In FY2025-26, this amount will be ₹12.75 lakh for salaried taxpayers, thanks to the standard deduction. The adjustments in tax slabs resulted in the 30% tax bracket now coming into effect for incomes over ₹24 lakh, bringing the new system closer in alignment with taxpayer needs.
Tax Savings Over Recent Years
Tax savings have become increasingly favorable under the new regime when compared with the old structure. For example, if a taxpayer earned ₹10 lakh, they would have had to pay ₹75,400 under the old regime. However, as of FY2025-26, the tax outgo under the new system has reduced to zero. Similarly, income levels of ₹20 lakh would see a reduction from ₹366,600 to ₹192,400 in tax liability when opting for the new tax framework, amounting to savings of ₹174,200.
At ₹40 lakh, the difference is equally striking, with payments dropping from ₹990,600 to ₹787,800, yielding a tax benefit of ₹202,800. Such significant reductions in the tax apportionment provoke interest and discussion among middle-class families about the potential for greater disposable income.
Taxpayer Engagement and Future Outlook
Most of the current taxpayers are integrating into the new regime. Reports indicate that over 70% of tax returns filed for AY 2023-24 were under the new structure. Tax experts affirm that many individuals are likely to switch this year, especially with the newly established zero-tax threshold for incomes up to ₹12 lakh encouraging more to explore the benefits of the revamped regime.
Amarpal Chadha, Tax Partner at a leading firm, remarked, “Over the past few years, the new tax regime has clearly boosted the take-home pay of most salaried taxpayers due to the rising basic exemption limits and reduced slab rates.” He also added, “In FY 2020-21, taxpayers faced slightly higher tax liability under the new system compared to the old one, but this has now transformed into considerable savings, emphasizing this shift as a game-changer for many.”
Anticipated Changes During the Upcoming Budget
Looking ahead to the Budget announcement, there is speculation about possible reintroductions of popular deductions and exemptions, such as provisions under Section 80C for investments and home loan interest benefits. The potential incorporation of these elements could add further value and attract taxpayers to either remain in or reconsider their current tax regime selection.
Experts highlight that while many are inclined towards the new system, the government may still want to maintain some benefits for old regime adherents, capturing a broader taxpayer base. The expectation is that adjustments could stimulate savings and investments in housing, ultimately aiding in economic recovery and stabilization.
Conclusion
As the Union Budget approaches, anticipation continues to mount regarding tax relief measures aimed at affecting middle-class taxpayers positively. The ongoing evolution in income tax structures demonstrates the government’s responsive approach to taxpayer needs amid fluctuating economic conditions. With potential announcements promising to further ease tax burdens, many hope for announcements that resonate with their financial circumstances and aspirations.
This evolving narrative surrounding the Union Budget encapsulates the government’s purpose of simplifying tax processes while allowing taxpayers to benefit from notable reductions in their liabilities.